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SPACE CENTER TYSONS, INC. v. OPUS NORTH CORPORATION

March 25, 2004.

SPACE CENTER TYSONS, Inc., a Minnesota Corporation, Plaintiff
v.
Opus North Corporation, Defendant



The opinion of the court was delivered by: REBECCA PALLMEYER, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Space Center Tysons, Inc. ("Space Center") claims that there are material defects in the concrete floors and parking lots of two commercial buildings that Space Center purchased from Defendant Opus North Corporation ("Opus") in late 1997 and 1998. On November 2, 2001, Plaintiff brought this suit for breach of contract and warranty and for misrepresentation in violation of certain agreements between the parties. Opus now moves for partial summary judgment. For the reasons stated below, Opus's motion is granted in part and denied in part.

FACTUAL BACKGROUND

 I. Leases

  Until 1997, Defendant Opus owned two parcels of real property located in Aurora, Illinois, at 2580 and 2540 Prospect Court. (Def.'s 56.*fn1 ¶ 5.) On June 30, 199.7, Opus, as landlord, executed a lease with Exel Logistics, Inc. ("Exel"), as tenant, for the 2580 Prospect Court property, referred to here as the "Kellogg Property."*fn2 (Id. ¶ 6; Kellogg Lease, Ex. 4 to Def.'s 56.1.) The Page 2 Lease required Defendant to undertake certain "Improvements" to the property, including construction of a 550,000 square foot warehouse. (Kellogg Lease § 2.1; Ex. B to Kellogg Lease.)*fn3 On August 28, 1997, Defendant and Exel entered into a lease ("Clorox Lease") for the 2540 Prospect Court property. (Def.'s 56.1 ¶ 7; Clorox Lease, Ex. 12 to Def.'s 56.1.) The Clorox Lease required Defendant to undertake certain "Improvements" to the property, including construction of a 350,000 square foot warehouse (together with the property, the "Clorox Facility"). (Clorox Lease § 2.1; Ex. B to Clorox Lease.)*fn4 Both the Kellogg Lease and the Clorox Lease (collectively, the "Leases") require the floors in the warehouse and truck dock area to be constructed of six-inch unreinforced concrete slabs, and the office area floor to consist of four-inch unreinforced concrete slabs. (Ex. B to Leases, at 2, 4.) The terms of the Leases that are relevant to this motion are identical. The commencement date of each Lease ("Lease Commencement Date") was the date on which the City of Aurora (the "City") issued a certificate of occupancy permitting Exel to occupy each Facility. (Leases, Ex. 4 to Def.'s 56.1 §§ 1.1, 2.2(b).)*fn5

 II. Purchase Agreements

  On November 8, 1997, the parties to this case entered into an agreement for the sale of the Kellogg Facility and the assignment of the Kellogg Lease from Defendant to Plaintiff ("Kellogg Page 3 Purchase Agreement"). (Def.'s 56.1 ¶ 9.) On the same day, the parties entered into an agreement for the sale of the Clorox Facility and the assignment of the Clorox Lease to Plaintiff ("Clorox Purchase Agreement"). (Id. ¶ 10.) The provisions of the Kellogg Purchase Agreement and the Clorox Purchase Agreement (collectively, the "Purchase Agreements") relevant to this motion are materially the same. (See Purchase Agreements §§ 1, 5, 7, 16, 19, 21 23; Ex. I to Purchase Agreements.)*fn6 In each Agreement, Defendant represents and warrants that, "[s]ubject to any latent defects and except as disclosed by any engineering reports received by [Plaintiff] with respect to the Real Property, the major structural, mechanical and electrical systems included among the Improvements are in good working order and condition to perform the work or function for which they are intended," (Purchase Agreements § 5(a)(vi).) "Improvements" are defined as "all building structures, improvements and fixtures owned by [Defendant], or in which [Defendant] has an interest, and are located on the Land, including, without limitation," the warehouse/distribution buildings. (Id. § 1(a).) The parties agree that the concrete floors in the Facilities are part of the structural system and, presumably therefore, are covered by the representations and warranties language in § 5(a)(vi). (Pl.'s 56.1*fn7 ¶¶ 45, 55; Def.'s Resp. 56.1*fn8 ¶¶ 45, 55.)

  Defendant also represents and warrants that, except for its ongoing maintenance responsibilities under the Lease and except for "Punch List Items," "all alterations, installations, decorations and other work required to be performed by [Defendant], as lessor, under the provisions of the Lease have been completed, or will be completed on or before the Closing Date." (Purchase Agreements § 5(a)(viii)(F).) "Punch List Items" are defined as items related to the initial Page 4 construction of the Improvements which may be required to be completed under (1) "any applicable temporary or permanent certificate of occupancy, or any similar instrument issued by a governmental or quasi-governmental authority in order to permit occupancy of the Improvements," or (2) the Lease (excluding items that affect commencement of the Lease term). (Ex. I to Purchase Agreements.) The Agreement requires Defendant to complete all Punch List Items. (Id.)

  Any cause of action for breach of the warranties and representations contained in the Purchase Agreements that is not brought within one year of the Closing Date expires, subject to § 5(c) of the Agreements. (Id. § 7.)*fn9 Under § 5(c), if Defendant becomes aware between the date of the Agreement and the Closing Date that any of its representations and warranties set forth in § 5(a)(vi)*fn10 of the Agreement are "no longer true and correct because of events occurring between the date of this Agreement and the Closing Date (`Particular Warranty Events'), [Defendant] shall promptly notify [Plaintiff] thereof in writing." Within ten days after such written notice, Defendant must "use its best efforts to cure" the problems. If, after reasonable efforts within the ten-day period, Defendant is unable to cure the problems, Plaintiff can "elect either (i) to terminate this Agreement . . . or (ii) to waive any such incorrect representations and warranties of [Defendant], and to proceed hereunder." In either event, "if the Particular Warranty Events are not the result of any affirmative acts, omissions, negligence or willful misconduct of [Defendant], then [Defendant] shall be automatically released from any and all liability with respect thereto." However, if such Particular Warranty Events are the result of "affirmative acts, omissions, negligence or willful Page 5 misconduct of [Defendant]," then Plaintiff is entitled to recover damages, limited to (1) certain tax benefits Plaintiff would have obtained had it elected a like-kind property exchange with a third party pursuant to § 16(b) of the Agreement, (2) costs and expenses Plaintiff incurred in preparation for the consummation of the transaction (including fees paid to consultants in connection with Plaintiff's due diligence efforts and attorneys' fees and costs), and (3) other direct damages, not including indirect, consequential, special, or punitive damages.*fn11

  In addition, the Agreement contains an integration and no-oral-modification clause:
This agreement constitutes the entire agreement between the parties with respect to the subject matter herein contained. All prior negotiations, discussions, writings and agreements between the parties with respect to the subject matter herein contained are superseded and of no further force and effect. No covenant, term or condition of this Agreement shall be deemed to have been waived by either party, unless such waiver is in writing signed by the party charged with such waiver.
(Id. § 19.) Illinois law governs the Agreement. (Id. § 21.) The Agreement includes an "As Is" clause providing that, except as set forth in the Agreement and in Defendant's Closing Documents, Defendant has made no representations or warranties and Plaintiff is acquiring the Facility "in its `as-is' condition with all faults." (Id. § 23.)

 III. Kellogg Facility Concrete Floors

  According to Plaintiff, Defendant breached § 5(c) of the Kellogg Purchase Agreement in that it allegedly failed to notify Plaintiff in writing that the representation and warranty contained in § 5(a)(vi) was untrue. (Pl.'s 56.1 ¶ 46.) Plaintiff contends that, contrary to Defendant's representation and warranty contained in § 5(a)(vi) of the Agreement, as of Novembers, 1997, the date the Agreement was executed, the Kellogg Facility concrete floors were "not in good working order and condition to perform the work or function for which they were intended." (Id.) To support Page 6 this contention, Plaintiff notes that, as of that date, Defendant had not completed the concrete floors. (Id.) Defendant acknowledges that it had not completed the warehouse concrete floors as of November 8, 1997, but denies that it breached §§ 5(a)(vi) and 5(c) of the Agreement because, according to Defendant, (1) Plaintiff "was well aware that construction was not complete at the time of the execution of the Kellogg Sales Agreement," (2) the concrete floors had been completed and were in good working order at the time of the Kellogg Lease Commencement Date, *fn12 and (3) Plaintiff "made no claim as to any breach of the Kellogg Sales Agreement within the time provided in" § 7.*fn13 (Def.'s Resp. 56.1 ¶ 46.)

  In a December 1, 1997 Progress Report addressed to Keith Coleman ("Coleman"), a Construction Manager for Exel, James Caesar ("Caesar"), a Construction Project Manager for Defendant, estimated that the warehouse slab floor was 85 percent complete. (Ex. 42 to Pl.'s 56.1; Caesar Dep., at 12, 95.) According to Caesar, Defendant began pouring the concrete for the Kellogg Facility floors during approximately the first week of November 1997 and finished pouring the floors on or around the second week of December 1997, five weeks later. (Caesar Dep., at 93-94.)

  At some point after the floors were poured, Mark Kurelac (currently a Warehouse Manager for Space Center Distribution, Inc., an affiliate of Plaintiff, and former General Manager of the Kellogg Facility for Exel)*fn14 claims that he "discussed the need for joint filler with Mr. Caesar[, Defendant's Construction Project Manager, as] Exel needed the joint filler placed in order for the floors to be suitable for the use of its tenant, Kellogg." (Kurelac Aff. ¶ 4.) Caesar, Kurelac claims, Page 7 "said placing the joint filler soon after placement of the floors might result in the joint filler failing to perform as intended." (Id.) Kurelac contends he "explained that it was not Exel's fault that the floors had been poured so late in the schedule and that Exel had no choice other than having the joint filler placed if Exel were to take possession and deliver the property for use by Kellogg." (Id.) Kurelac claims that Caesar and he agreed that Defendant "would place the joint filler and we would sort out at a later time who would be responsible for needed repairs to the joint filler." (Id.) Kurelac recalls that Caesar explained that "concrete floors undergo a period of drying out and shrinkage," adding that "it would be hard to tell how the floors would perform until the drying out and shrinkage process had taken place, which I understood from him would take approximately one year." (Id. ¶ 5.) Consistent with this explanation, Kurelac added, "I did not agree work [on the Kellogg Facility floors] was completed or the warranty period had started because consistent) with what Mr. Caesar had told me, I felt 1 needed to wait until the drying out and shrinkage process had ended and I needed to see what happened regarding the joint filler work." (Id. ¶ 6.) As discussed below, based on Kurelac's statement, Plaintiff contends that the floors were not complete when Defendant finished pouring the concrete.

  The planned closing date for the purchase and sale of the Kellogg Facility ("Kellogg Closing Date") was December 22, 1997. (Pl.'s 56.1 ¶ 9.)*fn15 As required by the Kellogg Purchase Agreement, on that date, Defendant executed and tendered to Plaintiff a "Construction Guaranty" ("Kellogg Construction Guaranty"). (Def.'s 56.1 ¶ 16; Ex. 69 to Def.'s 56.1.) In the Kellogg Construction Guaranty, Defendant guarantees that "the Improvements (as such term is defined in the Purchase Agreement), other than Punch List Items (as such term is defined in the Purchase Page 8 Agreement), if any," will be free from defects for a period of one year from January 6, 1998.*fn16 Defendant also guarantees that each Punch List Item will be free from defects for a period of one year "from the date on which each such Punch List Item has been completed." The Guaranty states, further, "In the event that any defect which is covered by the terms of this Construction Guaranty occurs, and [Plaintiff] provides written notice thereof to [Defendant], within such one[]-year period, [Defendant] agrees, at its sole cost and expense, to repair or replace such defective Improvements." Finally, the Construction Guaranty provides:
Except as expressly provided in the Purchase Agreement, performance of such one-year guaranty shall be [Defendant's] sole and exclusive obligation with respect to any defects in the Improvements (including, without limitation, the Punch List Items), and [Plaintiff's] rights to enforce such one-year guaranty shall be [Plaintiff's] sole and exclusive remedy with respect thereto, in limitation of any contract, warranty or other rights, whether express or implied, that [Plaintiff] may otherwise have under applicable law.
  On January 6, 1998, the City of Aurora issued a temporary certificate of occupancy for the Kellogg Facility, and the Kellogg Lease commenced. (Def.'s 56.1 ¶¶ 13-14; Ex. 17 to Def.'s 56.1.) Defendant claims that, as of that date, "construction of the concrete floors was complete, and there were no punch list items relating to the initial construction of the concrete floors." (Def.'s 56.1 ¶ 15.) Defendant points to a punch list document*fn17 titled "Exel Logistics — Items outstanding as of Page 9 January 14, 1998" that lists only one item relating to the construction of the concrete floors in the Kellogg Facility: concrete floor sealer, which the document indicates was completed by a subcontractor named Busy Beaver on December 31, 1997.*fn18 (Ex. 19to Def.'s 56.1, at 3; Caesar Aff. ¶¶ 1, 5; Coleman Dep., at 36-37.) Coleman testified that, to his knowledge, the concrete floors in the Kellogg Facility had been completed as of January 6, 1998. (Coleman Dep., at 37.)

  Plaintiff asserts that, "if the word `complete' is intended to suggest that the floors as placed were suitable and in accordance with the applicable specifications," then construction of the floors was not complete as of January 6, 1998. (Pl.'s 56.1 ¶ 15.)*fn19 Plaintiff also alleges that Exel never Page 10 agreed that work on the floors had been completed or that the warranty period had started. (Id.) To support these contentions, Plaintiff notes that Kurelac stated that he did not agree that work on the Kellogg Facility floors had been completed or that the warranty period had started because, consistent with what Caesar had told him, he felt he needed "to wait until the drying out and shrinkage process had ended and I needed to see what happened regarding the joint filler work." (Kurelac Aff. ¶ 6.)*fn20

  On April 17, 1998, the parties entered into a construction contract which provided that Defendant would construct a 100,000 square foot addition to the Kellogg Facility ("Kellogg Addition Contract"). (Def.'s 56.1 ¶ 34.) Defendant "substantially completed" construction of the Kellogg Addition, and the City issued a "certificate of occupancy and compliance" for the Addition on October 30, 1998. (Id. ¶¶ 35-36.) In the Kellogg Addition Contract, Defendant guarantees the work for a period of one year from the date of Substantial Completion. (Ex. 53 to Def.'s 56.1, art. 6.) Further, Defendant disclaims all warranties, (Id.)*fn21 It is undisputed that Plaintiff never gave Defendant notice of any claim of any defects in the parking lots of the Kellogg Addition. (Def.'s 56.1 ¶ 38.) In this lawsuit, Plaintiff claims that Defendant breached the Kellogg Addition Contract "with regard to the concrete floors and areas of the parking lots" and made misrepresentations in part to induce Defendant to enter into the Kellogg Addition Contract. (Compl. ¶¶ 38, 43.) These Page 11 claims are discussed below.

 IV. Clorox Facility Concrete Floors

  As with the Kellogg Facility, the parties agree that, as of November 8, 1997, the date of the Clorox Purchase Agreement, the concrete floors were not complete, but dispute whether Defendant therefore breached §§ 5(a)(vi) and 5(c) of the Agreement, making substantially similar arguments to those regarding the Kellogg Facility floors. (Pl.'s 56.1 ¶¶ 56-57; Def.'s Resp. 56.1 ¶¶ 56-57.) It is undisputed that the Clorox Lease commenced on March 30, 1998 ("Clorox Lease Commencement Date"), when the City issued a temporary certificate of occupancy for the Clorox Facility. (Pl.'s 56.1 ¶¶ 25-26; Ex. 57 to Def.'s 56.1.) The closing date for the sale of the Clorox Facility was April 15, 1998 ("Clorox Closing Date"). (Def.'s 56.1 ¶ 10.) As required by the Clorox Purchase Agreement, on that date, Defendant executed and tendered to Plaintiff a Construction Guaranty ("Clorox Construction Guaranty"). (Id. ¶ 28.) The provisions of the Clorox Construction Guaranty that are relevant to this motion are identical to those of the Kellogg Construction Guaranty, discussed above, except that the Clorox Construction Guaranty guarantees that the Improvements, other than Punch List Items, will be free from defects for a period of one year from April 15, 1998.*fn22

  Defendant claims that, as of March 30, 1998 or, at the latest, April 13, 1998,*fn23 initial "construction of the concrete floors was complete and there were no punch list items relating to the initial construction of the concrete floors." (Def.'s 56.1 ¶ 27; Def.'s Resp. 56.1 ¶ 73.) To support Page 12 these assertions, Defendant cites an April 13, 1998 punch list document of items related to the initial construction of the Clorox Facility which were incomplete as of March 30, 1998; Coleman (of Exel) and Bradley Flaugher ("Flaugher"), who served as Defendant's Construction Project Manager for the Clorox Facility, note that this punch list document includes no items related to construction of the concrete floors. (Ex. 25 to Def.'s 56.1; Coleman Dep., at 51; Flaugher Aff. ¶¶ 2, 5.)*fn24 In response to the question, "Ignoring the Certificate of Occupancy, do the status reports and the time line and the April 13 punch list lead you to conclude that the floors were complete by April 13, in any event?" Coleman stated, "I would say they were complete." (Coleman Dep., at 56-57.) Coleman implied, however, that he did not know whether Exel, his employer, had "accepted" the floors.*fn25 (Id. at 57.) Defendant also notes that the first punch list document to identify any problems with the floors was a June 10, 1998 punch list document, prepared by Flaugher, noting that repair of "[c]oncrete curling at joints in aisles of warehouse"*fn26 had a "scheduled completion" date of June 17, 1998. (Exs. 36, 82 to Pl.'s 56.1, at 4.)*fn27 In response to the question whether Page 13 concrete curling had been a problem before June 10, 1998, Coleman stated, "No, because we'd probably just gotten on starting to use the floor[s] for [their] intended use sometime between . . . the last May 28[] punch list" and June 10. (Coleman Dep., at 64-65.)*fn28 Although Defendant never bothers to identify in its submissions when the concrete for the Clorox Facility floors was poured, the record contains several status reports that Flaugher faxed to Coleman, Dale Bailey ("Bailey"), Ken Parker and Kevin Tarpley of Exel*fn29 indicating that the warehouse "shell building" had been "completely enclosed" and heating of the building had begun by February 3, 1998, that concrete pouring for the floors began on February 4, 1998, and that concrete pouring was completed on March 5, 1998. (Exs. 27-30 to Def.'s 56.1.)

  Plaintiff claims that Defendant was aware that Exel had concerns about the Clorox Facility's concrete floors since at least May 1998, through Exel's written and oral communications requesting that Defendant repair problems or defects in the floors, and that, in April 1999, both Exel and Plaintiff orally advised Defendant of problems or defects in the floors. (Pl.'s 56.1 ¶¶ 33, 64.)*fn30 To support these contentions, Plaintiff points to Bailey's handwritten document titled "Clorox Building Punch List Items" that Bailey faxed to Flaugher on May 14, 1998. (Ex. 34 to Pl.'s 56.1.) One of the items listed is "Cement floor in N aisle is sinking," which, according to Coleman, referred to Page 14 cracking and a change in elevation in one section of the floors. (Id.; Coleman Dep., at 101.) Defendant notes that Flaugher wrote "leave out" on the Bailey document next to the item "[e]lement floor in N aisle is sinking" so the item would not be added to the punch list document, assertedly because this floor section was not in fact sinking. (Ex. 81 to Def.'s Resp. 56.1, at 4; Flaugher Dep., at 127-29; Ex. 34 to Pl's 56.1.) There is no evidence in the record, however, that Exel accepted Flaugher's assertion that this floor section was not in fact sinking, nor does Flaugher's own determination that a reference to the floor sinking should be "left out" establish, as Defendant asserts, that the defect was never made a part of a punch list document.

  Plaintiff insists that Exel "never accepted the concrete floors because it did not ever believe the floors had been fixed or were in good condition." (Pt.'s 56.1 ¶ 27.) To support this contention, Plaintiff notes that, although Coleman testified that he believed the floors were complete as of April 13, 1998, he implied that he did not know whether Exel, his employer, had "accepted" the floors. (Coleman Dep., at 56-57.) Plaintiff also cites an internal Exel document-a bullet point list titled "Clorox — Chicago" faxed on September 2, 1999 from William Shelby of Exel*fn31 to Coleman-that lists "Concrete floors are spalling at saw joints." (Ex. 39 to Pl.'s 56.1, at 1.) In addition, Plaintiff points out that Flaugher's June 10, 1998 and November 3, 1998 punch list documents both identify concrete curling at aisle joints in the warehouse floor as a problem that had an "actual completion" date of August 12, 1998. (Id.; Exs. 36, 37, 82 to Pl.'s 56.1.) Plaintiff also cites a document ...


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